The theory that states that the yield curve reflects the market's current expectations of future short-term rates is called the _____________.

Question

Quizplus · Accepted Answer

The unbiased expectations theory states that the yield curve reflects the market's expectations of future short-term rates. It assumes that investors do not have a preference for any maturity, and that the expected return on short-term and long-term investments should be the same. This theory suggests that an upward sloping yield curve indicates that the market expects short-term rates to increase in the future.

The Theory That States That the Yield Curve Reflects the Market's